A balanced scorecard (BSC) is a visual tool used to measure the effectiveness of an activity against the strategic plans of a company. Balanced scorecards are often used during strategic planning to make sure the company's efforts are aligned with overall strategy and vision.
It was created to help businesses evaluate their activities with more than just a straight financial eye using revenues, costs, and profits. This diagram presents a balanced view that also takes into account other perspectives of success.
A traditional balanced scorecard examines the initiatives of a company from four different perspectives: Financial, Learning & Growth, Business Processes, and Customer.
These activities are noted in the appropriate buckets with stated measures, targets, and objectives for data collection and analyzing. The activities then can be evaluated and assessed properly.
The financial perspective in a balanced scorecard is potentially the most traditional of the four. You'll want to look at return on investment, growth, fixed costs, profit, and so on.
Learning and Growth Perspective
This area examines the company's health in terms of training employees on rapidly changing technologies, mentoring junior employees in a way that helps them grow and contribute, and employing the latest tools and systems to foster innovation. You may also want to examine how fast your company responds to change and how long it takes a team to develop a new product and bring it to market.
Business Process Perspective
It's also important to examine a company's internal processes to look for areas ripe for improvement by removing inefficiencies and identifying error-prone portions. Would it help the company's strategic goal if some processes were faster or cost less?
You will want to examine your company's activities from your customers' or stakeholders' perspective. How do your customers view your activities? What are the reviews and feedback? Do you have an objective measure of customer satisfaction from surveys or other sources? A negative perception of your business or products could lead to declining sales in the future.
Some claim that this traditional approach to balanced scorecards doesn't fit every industry or business. So some of today's balanced scorecards will feature a different set of perspectives, sometimes even more than the traditional four listed above. Some balanced scorecards will also rely on strategy maps. These balanced scorecards will portray a series of smaller strategic objectives in addition to the overall goal of the company.
Tips for Creating Balanced Scorecards
- Determine the vision. The company's main vision belongs in the center of a balanced scorecard. Whichever part of your company look at, you should always keep this goal or vision in mind.
- Add perspectives. To create a traditional balanced scorecard, place the four perspectives in a ring around the central vision.
- Add objectives and measures. Within each perspective define specific objectives, measures, targets, and initiatives.
- Connect each piece. Link each perspective to the others using arrows to indicate that they're all interconnected when it comes to achieving the company's vision.
- Share and communicate. Use the balanced scorecard to demonstrate how different initiatives and short-term actions are contributing to the long-term strategic objectives of the company.